a higher risk profile relative to that written by the pri-
maries. Subsequently, the following events transpired:
■One reinsurer’s rating was affirmed, attributable
to a well-managed reinsurance strategy and capi-
tal infusion, including an investment by one of
the primary bond insurers;
■One rating was affirmed but continued to have a
negative outlook for a period of time until the
company proved successful in its efforts to de-
emphasize reinsurance and place greater empha-
sis on direct underwriting;
■One rating was lowered when the reinsurer’s
operations ultimately merged into the operations
of an ‘AA’ rated affiliate direct writer of financial
guaranties; and
■The final reinsurer, generally agreeing with our
assessment of the situation, chose to have its rat-ing withdrawn and exited the business, placing
its book of business into runoff.
The analysis of a monoline reinsurer follows the
same basic methodology as for a primary insurer.
However, with one striking exception, following the
completion of our evaluation of the reinsurers in
2002, our expectation is that, barring an unusual sit-
uation, the highest financial strength rating a de
novo monoline reinsurer can receive will be ‘AA’.
One fundamental difference from the methodology
used to evaluate a primary insurer is that the total
initial capital required of a start-up reinsurer is $200
million, compared with $300 million for a start-up
primary insurer. Otherwise, the differences in empha-
sis and criteria are only minor, reflecting different
modes of operation and industry fundamentals.
With respect to the rating exception cited for start-
up monoline reinsurers, strategic planning that goes
beyond simply offering reinsurance capacity but306 Standard & Poor’s Public Finance Criteria 2007Other Criteria—Underlying rating Category—
Single-risk
Sector¶ CCC B BB BBB A AA AAA category§
State agency single-family** 100 70 50 13 7 5 5 1
Local agency single-family** 200 140 100 26 14 10 8 3
FHA-insured multifamily**¶¶ 6 4 3 0.8 0.4 0.3 0.2 1
Stand-alone affordable housing/Section 8/student housing 350 245 175 46 25 18 14 6
Mobile home parks/single-borrower pools 300 210 150 39 21 15 12 5
Military housing/multiborrower pools 250 175 125 33 18 13 10 4
Investor-Owned Utilities
Electric distribution system 120 84 60 16 8 6 5 1
Water, electric, and gas 120 84 60 16 8 6 5 1
Gas distribution 150 105 75 20 11 8 6 2
Telephones 150 105 75 20 11 8 6 2
Natural gas pipeline 450 315 225 59 32 23 18 6
Corporates and Financial Institutions¶¶
Life and property/casualty insurance operating companies 40 33 28 7 4 3 2 5
Life and property/casualty insurance holding companies 80 67 55 15 7 6 4 6
Bank operating companies 40 33 28 7 4 3 2 5
Bank holding companies 80 67 55 15 7 6 4 6
Industrial companies 60 50 42 11 5 4 3 6
Subordinated debt 80 67 55 15 7 6 4 6
*Expressed as a percent of average annual debt service. ¶Moral obligations: a constant adjustment factor of 200% will be used. Lease obligations: a constant
adjustment factor of 200% will be used. General fund or non-ad valorem pledges: a constant adjustment factor of 150% will be used. Junior-lien bonds: a constant
adjustment factor of 120% will be used. §See Table 5. **Top tranche, secondary market transactions only. Primary and mezzanine structures are assessed on an
individual basis. ¶¶Expressed as a percent of par. For maturities of one year or less, the capital charge is reduced by 75%; for maturities of between one year and three
years, the capital charge is reduced by 50%; for maturities between three years and five years the capital charge is reduced by 25%. (1) Public power agencies with
special project risk, including, but not limited to, troubled nuclear operations and capital additions that fundamentally alter a utility’s debt profile and/or represent the
adoption of new, unproven technologies. (2) Public power agencies that are highly dependent on nuclear generation to serve their customers’ needs. (3) All other pub-
lic power agencies, including those that do not face special project risk and do not have a substantial dependence on nuclear resources to serve their customers.
Table 6 U.S. Municipal And Corporate Rating Sensitive Capital Charges (%)* And Single-Risk Categories(continued)